Thursday, November 10, 2011

This is a guest blog by Johanna Jansson, a PhD candidate in International Development Studies at the Department of Society and Globalisation, Roskilde University, Denmark. Her PhD project explores the DRC’s relations with its emerging and traditional development partners.

The ‘China deal’, the minerals-for-infrastructure agreement struck in 2007 between the DRC and China, is one of the most well-known embodiments of the increasing Chinese presence on the African continent.

Most of you are familiar with the story. By means of a barter-type agreeement, the Sino-Congolese mining joint venture (JV), Sino–Congolais des Mines (Sicomines), was created and allocated mining titles in Katanga. In exchange for access to mining titles, Sicomines will construct transport and social infrastructure in the DRC, financed by loans from the Chinese state-owned bank China Export–Import (Exim) Bank. The loans are to be reimbursed by means of the profits from the mining venture. The mining titles allocated are the Mashamba West and Dikuluwe copper- and cobalt concessions.

The agreement was contested during 2008 and 2009 by a range of domestic and international actors. Among the concerns raised, the most salient pertained to a lack of transparency in the negotiation process, concerns for debt sustainability and a claim that the agreement was skewed in favour of the Chinese party. The Sicomines episode became known worldwide since it provoked the perhaps most conspicuous (geo) political controversy seen to date between an African country’s traditional (IMF) and emerging (China) external partners. The 2009 settlement was in favour of the IMF’s preferences: the loan towards infrastructure was capped at US$ 3 billion and the guarantee provided by the Congolese state for the reimbursement of the China Exim Bank loan to the commercial mining venture was removed.

The agreement is now under implementation (refer to the table below for an overview of the infrastructure projects implemented). The mining venture is slated to come into production in 2012-2013 and reach full capacity in 2016.

In a recent paper for the South African Institute of International Affairs, I take a close look at the agreement from its inception in 2007 to the state of implementation as of May 2011. The paper draws on field work in Kinshasa and Lubumbashi in September-October 2008, February-March and October 2009 and February-May 2011. I have conducted interviews with Congolese respondents from government departments, civil society and the private sector; Chinese respondents from state-owned and private enterprises and the Chinese Embassy; and representatives from international governmental and non-governmental organisations, the diplomatic community and observers. Around 50 of my 130 interviews concerned the Sicomines agreement specifically.

In the paper, I argue that the Sicomines episode reflects the contemporary changes in China’s role globally. The power configurations of the global political economy shifted significantly from 2007 when the agreement was first signed to 2009 when it was renegotiated. China’s ascension as a global leader was fast-tracked by the global economic downturn. Its position as an external actor to reckon with in the DRC is now consolidated, a development which in itself signifies change in the DRC’s international relations. Yet, the Sicomines agreement also represents continuity in that regard, since it was amended to the benefit of the policy preferences of the IMF. The revision came about for several reasons which I outline in the paper. The most important is that China, with its strong strategic interest in taking up an active role in the IMF, had to balance its goals in the DRC and in the IMF. The lobbying efforts of the traditional donors, also members of the IMF’s board, therefore had the desired effect of making China agree to a downsizing of the agreement.

Since the Sicomines agreement was revised in 2009, it has slipped down the agenda and is no longer subject of a great deal of Kinshasa’s attention. “It’s under implementation, and it’s going slower than the Congolese government would have wanted”, seems to be the assessment of most people, Congolese and expatriates, I’ve talked to this year. Yet, many questions around what the agreement actually meant and means for the DRC remain both undebated and unanswered.

A matter that I find deserves to be opened up is the perception that the downsizing of the agreement was primarily made for debt sustainability reasons. It was part of the considerations, rightly so, but there is more to that story. I show in the paper that despite the fact that the quantity of minerals contained by the mining concessions is uncertain, even IMF and World Bank staff has observed that the repayment margin for the loan to be contracted under the 2009 version of the agreement is important. A second tranche of lending towards infrastructure may thus have been within the reimbursement capacity of the Sicomines JV. In other words, a loan larger than US$ 3 billion could have been justified. The halving of the credit line to be extended by China Exim Bank towards infrastructure refurbishment therefore needs to be read as more than a result of debt sustainability concerns. It is also an expression of the IMF’s and the traditional donor community’s preferences in terms of how investments in the mining sector should be structured: that investments should be channelled through the Mining Code, the companies should pay taxes and public goods should be provided by the state. By means of the renegotiation of the Sicomines agreement, this model partly trumped the original developmental-state approach: a credit line extended by a state-owned bank providing up-front financing of turnkey infrastructure projects, and reimbursements on that loan replacing payment of profit taxes. Both approaches have their pros and cons in the Congolese context, and I discuss this further in the paper.

Lastly and importantly, I find that there is a strange discrepancy between the enormous attention devoted by the international community to the issue prior to October 2009 and today’s relative silence. After all, the amendments made in 2009 only encompassed a cap on the infrastructure loans. US$ 3 billion of loans are still to be contracted by the DRC, and the real story in terms of the DRC getting value for ‘money’ (mining titles) will in this case be determined by the implementation of the infrastructure projects. As my paper shows, and as indicated by the table below, one project is completed, eight are under implementation and six projects are under negotiation. For the remainder of projects, the disbursement pace will be determined by the profitability of the mine. The selection of specific projects and the terms of these (most notably the price) are determined in negotiations between the Chinese parties in Kinshasa and Beijing on the one hand, and the Bureau for Coordination and Monitoring of the Sino-Congolese Programme (Bureau de Coordination et de Suivi du Programme Sino-Congolais) and the Congolese Agency for Public Works (Agence Congolaise des Grands Travaux) on the other. Anyone interested in whether or not the Sicomines agreement is a ‘good deal’ for the DRC – this is where to take a closer look over the years to come.

State of implementation of the infrastructure projects financed through the Sicomines agreement

This table is reproduced from Jansson, J. (2011). “The Sicomines agreement: change and continuity in the DRC’s international relations”. Occasional paper, October. Johannesburg: South African Institute for International Affairs.

Project

Measure

Contractor

Status as of

June 2011

Cost ($ million)

The road between Beni and Niania, North Kivu

Refurbishment

Sinohydro

Completed and evaluated

57

Boulevard Triomphale, Kinshasa

CREC

Underway, about to be completed

N/A

Boulevard Sendwe, Kinshasa

Central hospital (Hôpital du Cinquantenaire), Kinshasa

Construction

Sinohydro

Underway, estimated inauguration October 2011

200

Part 1 of the Boulevard du 30 juin, Kinshasa

Refurbishment

CREC

Underway, about to be completed

N/A

Part 2 of the Boulevard du 30 juin, Kinshasa

Underway

N/A

Tourism Avenue, Kinshasa

24.4

Lutendele Road, Kinshasa

21

The road between Lubumbashi and Kasomeno, Katanga province

138

15 km of road in Butembo, North Kivu province

Sinohydro

Not yet started

30

Part 1 of the esplanade in front of the People’s Palace, Kinshasa

19

Part 2 of the esplanade in front of the People’s Palace, Kinshasa

Not negotiated at the time of the 2011 field research

Avenue de la Paix, Kinshasa

Avenue Ndjoku, Kinshasa

The road between Bukavu and Kamaniola

Source: Johanna Jansson’s personal interviews in Kinshasa with ACGT representatives, 15 February 2011 and 3 February 2009; a representative for one of the Chinese companies within Sicomines, 3 May 2011; and with BCPSC representatives, 23 February 2009 and 3 March 2009.

123 comments:

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Very illuminating post. Perhaps it just my ignorance of this deal (which, I’d add, results from its continuing secretive nature), but it really does appear there is no master plan behind this infrastructure deal. As a result, it seems haphazard, focused too heavily on Kinshasa, and as a result builds in alot of inefficiency which leads to waste, cost overruns, and corruption.

Does anyone know if there is a master infrastructure plan in place that is guiding this deal? To give you an example of what I mean, here’s the Palestinian Arc created by Rand in Los Angeles.

http://www.youtube.com/watch?v=N1d75lMTy7Q

The whole idea here is to take where Palestinians mostly live, work, and die, use rail to connect current habitations, and create an infrastructure “arc” to connect the West Bank and Gaza strip to ensure the delivery of electricity, water, Internet, etc along the arc.

While actually getting a Palestinian state must come before all this is done, from my understanding the Arc Project will guide planning for this future state.

If you look at the Congo’s habitat patterns- ie where people live, work, farm, etc- its possible to create a similar backbone that follows the Congo river, its tributaries, and the “spine” that is the Virunga chain of mountains and the Great Lakes (Albert, Edward, Kivu, Tanganyika, etc) . Such a backbone would connect population centers to each other- by rail, road, river ports, etc- and thus provide more clarity and efficient to the projects of this deal.

So to repeat my question: does anyone know if such a master infrastructure plan is in place?

I realize transparency issues are a large concern with this and natural resource concessions in the Congo. But this deal is important and, with a master plan guiding it, help the Congo to develop and connect its people which would help this state grow stronger and deepen its fragile democracy. It would also assist with foreign investment since the Congolese, with such a master plan, could point to it and say where along a backbone investment is most needed which has the effect of assisting the investor with cost estimates.

Clay is right that Sicomines could be beneficial for Congo if it is allocated to a master infrastructure plan. The big issue for now is that there is not even an official list of infrastructure projects that will be implemented under the deal. The 2008 contract had one, but with the infrastructure part being reduced from 6 to 3 billion in 2009, you'd expect a new annex. As far as I know, no one has seen it, making it extra difficult to see what's been built by the Chinese consortium under Sicomines, what's been built by the Chinese under some other contract, and what's been built by others altogether. For some reason I fail to understand, there is now a lot of resistance from the congolese to monitor how works are being implemented: some even go and argue that the infrastructure works haven't started yet so there's no need to include Sicomines in the 2010-2011 EITI reports...

Thanks therefore Johanna for trying to find out which infrastructure projects have been rolled out so far and at which cost. As you say, it's only when we will know whether Congo is getting value for its minerals that we'll be able to talk about fair or not. And in this case the 'bilan' could actually be positive, so I hope people will keep demystifying it all.